UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-KSB
-----------
ANNUAL OR TRANSITIONAL REPORT
(Mark One)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998
OR
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-15486
MIKRON INSTRUMENT COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY 22-1895668
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
16 THORNTON ROAD, OAKLAND, NJ 07436
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(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 405-0900
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
Name of each exchange on
Title of each class which registered
- ------------------- ----------------
Common Stock, one-third cent par value Nasdaq Small-Cap Market
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes |X| No |_|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |_|
Revenues for the most recent fiscal year were $8,426,771.
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of January 19, 1998, based upon the average bid and asked prices
of such stock on that date was $2,682,200. Solely for purposes of the foregoing
calculation all of the registrant's directors and officers are deemed to be
affiliates.
The number of shares of the registrant's Common Stock outstanding as of January
19, 1999 was 3,785,700.
Transitional Small Business Disclosure Format Yes |_| No |X|
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PART I
ITEM 1. BUSINESS.
GENERAL
Mikron Instrument Company, Inc. ("Mikron" or the "Company") a New Jersey
corporation organized in 1969, develops, manufactures, markets and services
equipment and instruments for non-contact temperature measurement. The Company's
products are typically used to measure the temperature of moving objects, or
stationary objects in environments or situations where contact temperature
measurement would be difficult, hazardous or impracticable, and wherever rapid
temperature changes must be accurately tracked instantaneously. The predominant
market for the Company's hand-held infrared thermometers is industrial quality
control applications and maintenance. The Company also markets its products to
laboratories and original equipment manufacturers, both domestic and foreign,
where "fixed" infrared thermometers are incorporated as integral components of
production equipment.
The Company also manufactures high resolution thermal imaging products under the
name of Pyrovision(R), and manufactures and/or markets calibration sources and a
variety of accessories and optional equipment for its infrared thermometers.
PRODUCT DESIGN
Although the Company has developed a line of infrared thermometry products for
many scientific and industrial applications, all such products operate in
essentially the same way. All physical objects emit infrared radiation. The
amount of such radiation is a function of the surface temperature of each such
object. The Company's infrared thermometry products detect and measure such
radiation, convert it into an electrical signal and translate the signal into a
temperature reading of the target surface of the object, all without contact
with the object. The basic components of a Company infrared thermometer consist
of a lens and mirrors or a fiber optic assembly for focusing on the object, an
infrared detector head which converts the infrared radiation emitted from the
surface of the focused object into an electrical signal, electrical circuitry, a
meter or output indicator, and the housings for these components.
The Company sells two basic kinds of infrared thermometers: "portable" units and
"fixed" units and product sales are a mix of portable and fixed infrared
thermometers and calibration sources. The different models in the Company's
product line have each been designed with different focusing methods, detectors,
electrical circuitry, indicators and housings so as to optimize performance
under different applications, sets of conditions or temperature ranges.
The portable units are battery-powered with digital meters and are hand-held for
temperature measurement of target surfaces typically in a laboratory or
industrial facility. The price range of the Company's portable units is between
$1,275 and $5,000.
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The fixed units are externally powered, have electrical outputs instead of
meters and are permanently incorporated as an integral component of a machine or
on a production line. The price range of the fixed units manufactured by the
Company is between $225 and $7,000.
CURRENT PRODUCT OFFERINGS
The Company has introduced a number of new products in the past few years, and
continues to expand existing product lines, that management believes will
contribute to its sales.
In January, 1998, the Company commenced distribution of the Mikron TH5104
IR-Man(R) Portable Thermal Imager which is manufactured by NEC San-ei Instrument
Ltd. ("NEC"). This high resolution, high sensitivity product was designed for
plant and equipment preventative and predictive maintenance and condition
monitoring applications. Typical applications include monitoring electrical
panels, components, transformers and motors as well as energy auditing of
buildings and HVAC equipment.
In January, 1998, the Company introduced the Mikron M680 Infraducer(R). A
multi-channel fiber optic infrared thermometer. This product features
exceptionally broad temperature spans and selected spectral responses and was
designed for applications requiring accurate temperature measurement at multiple
locations such as monitoring rapid thermal processing in the semiconductor
manufacturing process. Other applications include crystal growing, heat
treatment and fabrication of metals, vacuum metal melting and automatic
induction heating.
In September 1996, the Company introduced the Mikron Model M385, an
ultra-precision, low temperature blackbody calibration standard. This
calibration source is designed for applications in metrology laboratories as
well as medical, life sciences and environmental science disciplines.
In October 1995, the Company introduced the Mikron Model M68L, a new product
line of fiber optic infrared sensors. This unit offers two high temperature
spectral response ranges and offers dual temperature ranges in each unit. They
are excellent for applications in the glass industry, induction heating and in
hazardous environments. Pricing starts at approximately $1,990.
In October of 1995, the Mikron Model M9000 Pyrovision Thermal Imaging system was
formally introduced to the marketplace. This high temperature thermal imaging
system operates in the range of 600 degrees C to 2400 degrees C. Its unique near
infrared imaging, high speed and excellent spatial resolution offer significant
advantages over conventional imagers. The price range of this product is between
$25,000 and $50,000.
In 1994, the Company introduced the Mikron M100 IR-Man, a hand-held series of
non-contact infrared thermometers with precision laser sighting. The principal
application of this product is in preventative maintenance.
The Mikron M380 Series of freezing point blackbody calibration sources was
introduced in 1993. It is used for setting and verifying the accuracy of
calibration of infrared equipment to national standards.
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The Model M190-TS was introduced in 1995 as a transfer standard for calibration
laboratories. It allows laboratories and national standards laboratories to
accurately transfer the calibration of one blackbody source to another. It has
been sold to national standards laboratories around the world.
The Company designs, assembles and/or markets accessories and optional equipment
for its infrared thermometers, such as its Infracouple infrared temperature
sensors, lenses, fiber optic assemblies, calibration equipment, mounts,
protective jackets and cases, batteries, chargers and camera adapters.
The Company also services its products during and after the expiration of the
applicable warranty period, which is from one to two years, depending on the
model. These services also include re-calibration of instruments and blackbody
sources that are traceable to NIST. With the growing requirement for traceable
calibration throughout the industry, the company has expanded its capacity in
service.
PRINCIPAL MARKETS, MARKETING AND CUSTOMERS
The Company's infrared thermometry products and accessories are used
industrially (i) in manufacturing processes to measure the process temperature
of metals, wood, plastics, paper, textiles, rubber, glass, ceramics, food and
chemicals, (ii) for condition monitoring and preventative and predictable
maintenance purposes to check temperatures of kiln walls, heat exchangers,
boilers, engines, compressors, transmissions, bearings, gears, pumps, steam
lines and traps, transformers, electrical switch gear and heat loss prevention;
(iii) for quality control to test the temperature and integrity of electronic
equipment, electrical components and circuitry, insulation, and cooling and
heating systems. The Company has initiated efforts to expand the sales of its
products into a variety of non-industrial industries including, among others,
scientific research laboratories.
The Company's products are sold through a network of approximately 85
independent sales representatives and distributors worldwide. The sales
activities of such sales representatives and distributors are coordinated by
five employees of the Company, who are also directly responsible for the balance
of the Company's sales. The Company promotes its products through printed
advertisements in selected industrial and trade journals. The Company also
promotes its products by participating in national and international trade
shows. In fiscal year 1998, the Company continued its marketing program by
maintaining promotional and sales campaigns to increase market awareness of the
use of non-contact thermometry devices.
During each of its fiscal years 1997 and 1998, the Company had approximately
1,000 customers, none of which accounted for more than 10% of its sales. The
Company estimates that it currently has an active customer base of 3,000
customers. The loss by the Company of any single customer would not have a
materially adverse effect on the Company.
In fiscal 1998, approximately 19% of the Company's sales were to customers
outside of the United States, as compared to approximately 29% in fiscal 1997.
The approximate 10% decrease in international sales which the Company
experienced over that two year period was attributable
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to decreases in product purchasing activities undertaken by some of its
Southeast Asian customers as a result of the economic problems that have
developed in that region of the world. The Company has taken steps to strengthen
its sales outside the United States through appointment of sales
representatives, additional promotional activities and technical training of
representatives. As a significant portion of the business is done through known
accounts, in dollars, and the balance is sold on letter of credit terms, there
is little credit or currency risk associated with this business. International
exchange rates have made exports from the United States more viable than in the
past, and the Company intends to take advantage of this situation.
COMPETITION
Infrared thermometry equipment and instruments similar to the Company's products
are currently available from other manufacturers, some of whom are larger and
have greater financial and technological resources than the Company.
The Company believes that its sales constitute a small percentage of the
worldwide market for infrared thermometry products. The primary competitive
factors with respect to infrared thermometry products are accuracy, sensitivity,
response time, quality control and the availability of products which optimize
performance in specific applications, conditions and temperature ranges.
Although the Company believes its products compete favorably with respect to
such factors, there can be no assurance that the Company can maintain its
competitive position against current and potential competitors.
In the past two years there have been a number of new products and competitors
entering the low price hand held infrared thermometer market. The Company
believes that this trend will continue as this market grows and that higher
capabilities at stable or reduced pricing will be critical for process or fixed
infrared systems in the next few years. Consequently, strategic marketing and
focus will be critical for growth within these product lines.
INVENTORY, SUPPLIES AND MANUFACTURING
The Company subcontracts the manufacture of almost all of the components that go
into its products. The Company's manufacturing operations primarily involve the
assembly, testing, quality control, calibration and packaging of materials and
components, which are generally available in the marketplace from numerous
suppliers and sources. Since the components are readily available from other
suppliers and since there are several electronic assembly firms available, a
change in suppliers would not have a material effect on the Company's
operations. Materials and components necessary for the Company's manufacturing
activities have always been available in the past and the Company does not
anticipate any future shortages or unavailability in the supply of such
materials and components.
The Company attempts to maintain a sufficient inventory of materials and
components so as to be able to fill orders for its products within six weeks
after receipt of an order. Its inventory stock is closely monitored by computer,
which enables the Company to be consistent in its order response time and to
maintain its inventory at desired levels.
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QUALITY ASSURANCE
In May 1996, the Company secured ISO 9001 certification of its Quality Assurance
systems. This international customer driven certification, encompasses all
operating aspects of the Company's business including sales and marketing,
design and engineering, manufacturing, testing and calibration. ISO 9001
certification brings the Company's quality systems and operating systems a level
of recognition from most domestic and international customers.
The Company's principal products have also been tested and certified to meet or
exceed CE sensitivity and emissions standards for electro-magnetic interference.
RESEARCH AND DEVELOPMENT
The Company conducts product development activities to increase the size of its
available market through broader product offerings and to cost reduce its
products resulting in more competitive pricing and/or better operating margins.
For the past year, the Company's research and development activities has been
primarily devoted to the development of new infrared thermometry products, such
as the Mikron M680 Infraducer for semiconductor industry applications, as well
as the adaptation and enhancement of existing products for new applications.
The Company believes that its ability to maintain a technological edge in
infrared technology and to achieve early market entry with new infrared
thermometry products are critical factors to its business. Accordingly, it has
been increasing its research and development budget in recent years. The new
products introduced by the Company over the last several years, were a direct
outgrowth of its research and development program. See "Current Product
Offerings."
INTELLECTUAL PROPERTY
The Company owns two patents covering technology related to its infrared
thermometry products, and derives royalty payments from one of its patents.
Neither of these patents is material to the Company's overall business.
Furthermore, there can be no assurances that the Company's patents will provide
an adequate measure of protection against competitive technology which could
circumvent such patent or that an issued patent would withstand review and be
held valid by a court of competent jurisdiction. No other patents have been
issued or applied for with respect to any of the Company's products or other
proprietary technical information and there is no assurance that any products of
the Company will be patentable.
The protection of proprietary technology and information developed by the
Company will be limited to such protection as the Company may be able to secure
pursuant to trade secret or copyright laws or under any confidentiality
agreements which it may enter. The Company has filed trademarks and trade names
for certain of its product names and marks, however, there is no assurance as to
the validity, enforceability or lack of infringement of such trade names and
trademarks.
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The Company is a party to confidentiality agreements with key personnel and
third parties. There can be no assurance that the scope of any such protection
the Company is able to secure will be adequate to protect its proprietary
information, or that the Company will have the financial resources to engage in
litigation against parties who may infringe such proprietary technology or
copyrights. In addition, there can be no assurance that others will not develop
similar technology independently of the Company. The Company, however, believes
that the limited protection of its proprietary technology will not materially
affect its business or future prospects. The Company believes that its products
do not infringe the proprietary rights of third parties. There can be no
assurance, however, that third parties will not assert infringement claims in
the future.
Mikron(R), IR-Man(R), Pyrovision(R), Infraducer(R) and Infracouple(R) are
trademarks of the Company which has been registered with the United States
Patent and Trademark Office.
EMPLOYEES
As of October 31, 1998, the Company's staff was comprised of 47 persons, 45 of
whom were full time and 2 of whom were part time. Of the total number of
employees, 9 are engaged in design engineering and research and development, 19
in manufacturing and production, 6 in marketing and sales, 8 in administration
and finance, 1 in customer service and 4 in general office. None of Company's
employees are represented by unions. The Company has not experienced any strikes
or work stoppages and, in the opinion of the Company's management, has good
working relations with its employees.
CERTAIN CONTRACTUAL ARRANGEMENTS
The Company also has a variety of agreements with Chori Co., Ltd. ("Chori") and
an affiliate of Chori, Chori of America, Inc. ("Chori-America") which includes
the transfer of certain technology, the cross-licensing of each other's
technology, the marketing of each other's products, and the collection of
proceeds from the Company's foreign sales. See "Certain Relationships and
Related Transactions."
The Company has recently entered into a sales representation agreement with
Anritsu Meter Co., Ltd. ("Anritsu"). Pursuant to the agreement, the Company was
granted the exclusive, except as to Anritsu, right to promote and sell Anritsu
products in North America. The agreement, which commenced as of March 1, 1998,
has a five year term with a one year notice period for termination thereafter.
Anritsu manufactures a full line of lower cost contact temperature probes,
indicators and calibrators.
FORWARD-LOOKING STATEMENTS
Some of the statements made in this Form 10-KSB are forward-looking in nature,
including but not limited to the Company's business strategy, marketing
assumptions, product development, plans concerning the commercialization of
products, certain financial information and other statements that are not
historical facts. The occurrence of the events described, and the achievement of
the intended results are subject to the future occurrence of certain events and
scientific results, some or all of which are not predictable or within the
Company's control;
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therefore, actual results may differ materially from those anticipated in any
forward-looking statements.
ITEM 2. PROPERTIES.
The Company maintains its corporate and administrative facilities at 16 Thornton
Road, Oakland New Jersey. The building has approximately 26,397 square feet and
is also used for the Company's production and warehouse facilities. The lease,
which expires on December 31, 2000, requires the Company to pay real estate
taxes, insurance, maintenance and other operating costs. The lease, provides for
rent at a fixed annual amount of approximately $191,380 payable in equal monthly
installments. The Company has an option to renew the lease for an additional
five year period with the rent to be paid during the option period to be the
fair market rental value of the property as determined by an independent M.A.I.
appraiser.
ITEM 3. LEGAL PROCEEDINGS.
There are no pending material legal proceedings to which the Company is a party
or to which any of its properties is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to the vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year covered by this report.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED MATTERS.
The Company's Common Stock, is traded on the Nasdaq Small-Cap market under the
symbol "MIKR." The following table sets forth the range of high and low closing
bid prices for the Company's Common Stock as reported by the Nasdaq Stock Market
for the last two fiscal years. These quotations represent inter-dealer prices,
without adjustment for retail mark-ups, mark-downs or commissions and do not
necessarily represent actual transactions:
Fiscal Years Bid Price
- ------------ ---------
Low High
--- ----
1999:
First Quarter through
January 19, 1999 $1.03 $1.63
1998:
First Quarter $1.00 $2.25
Second Quarter $1.00 $2.88
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Fiscal Years Bid Price
- ------------ ---------
Low High
--- ----
1998:
Third Quarter $1.13 $2.59
Fourth Quarter $0.25 $1.50
1997:
First Quarter $1.88 $2.63
Second Quarter $1.00 $1.88
Third Quarter $1.00 $1.75
Fourth Quarter $1.00 $2.75
On January 19, 1999, the closing bid and asked price quotations for the
Company's Common Stock were $1.03 and $1.50, respectively. The Company believes
that its Common Stock is held of record by approximately 42 persons, including
several brokerage firms holding shares in street name for more than 400
beneficial owners.
DIVIDEND POLICY
The Company has not, to date, paid nor declared any cash or other dividends on
its shares of Common Stock since its inception. The Company has no current plans
to pay dividends on its Common Stock and intends to retain earnings, if any, for
working capital purposes. Any future determination as to the payment of
dividends on the Common Stock will depend upon the results of operations,
capital requirements, the financial condition of the Company and other relevant
factors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's results
of operations and financial condition. This discussion should be read in
conjunction with the financial statements and notes thereto appearing elsewhere
herein. See also "Business."
OVERVIEW
The Company, develops, manufactures, markets and services equipment and
instruments, including hand-held infrared thermometers, for non-contact
temperature measurement. The Company's products are typically used to measure
the temperature of moving objects, or stationary objects in environments or
situations where contact temperature measurement would be difficult, hazardous
or impracticable, and wherever rapid temperature changes must be accurately
tracked instantaneously. The Company's predominant markets include industrial
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quality control applications and maintenance, as well as laboratories and
original equipment manufacturers where "fixed" infrared thermometers are
incorporated as integral components of production equipment. Recently, the
Company has begun to augment its own product development activities by
distributing certain compatible and strategic products of other manufacturers of
both contact and non-contact temperature measurement instruments and accessories
such as NEC and Anritsu.
RESULTS OF OPERATIONS
Year Ended October 31, 1998 Compared To Year Ended October 31, 1997
Net sales for the fiscal year ended October 31, 1998 were $8,250,730, as
compared to sales of $6,618,513 for the fiscal year ended October 31, 1997. This
substantial increase of 25% is primarily attributed to the introduction and
sales of the portable thermal imager Model TH5104. The cost of goods sold
consists primarily of the costs of direct materials and labor associated with
sales and support of the company's products. The cost of goods sold as a
percentage of net sales for fiscal 1998 was 47% as compared to 45.5% for fiscal
1997. The increase of 1.5% was principally the result of a lower gross profit
margin for Model TH5104 thermal imager that is imported and cannot enjoy the
same gross margin of profit as a product manufactured by Mikron.
Selling, general administrative expenses consist primarily of the costs of
sales, marketing, finance, management and administrative personnel, advertising,
promotions, trade shows and facilities expenses. For the fiscal year ended
October 31, 1998 selling, general administrative expenses were $3,620,910 as
compared to $3,192,219 for the same period in 1997. A major portion of this
increase is due to promotion, marketing, exhibitions and training associated
with the introduction of Model TH5104. In addition, Mikron introduced a new,
comprehensive 250 page general catalog that encompasses descriptions of all
Mikron products and associated technical information at a cost of nearly
$75,000. Also, Mikron embarked on the design of a comprehensive home page
web-site for the Internet. The cost associated with development of the web-site
during 1998 is estimated at $35,000.
Research and development expenses consist primarily of research and
development personnel and other expenses associated with the development of new
products, enhancement of existing products and engineering support of the
manufacturing process. The Company spent $726,241 in fiscal year 1998 as
compared with $658,070 for the same period in 1997. Such expenditures covered
both research and development conducted by the Company as well as contracted
research and development. The dollar increase was principally attributed to an
accelerated effort to develop more variations and software of the Company's
Model M680 Infraducer and work on the new Model M9000 Pyrovision imaging
pyrometer as well as Model M770 Infraducer and blackbody sources.
The profit before income taxes for the fiscal year ended October 31, 1998
was $231,617 as compared to a net loss of $36,251 for the same period in 1997.
The increase in profits in fiscal 1998 was due primarily to a substantial
increase in sales. The introduction of Model
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TH5104 thermal imager contributed to the final profitability of the Company even
though other parameters such as greater efficiency in manufacturing were
contributing factors.
Year Ended October 31, 1997 Compared To Year Ended October 31, 1996
Net sales for the fiscal year ended October 31, 1997 were $6,618,513, as
compared to sales of $6,943,309 for the fiscal year ended October 31, 1996. The
decrease was primarily attributable to the delays associated with a
reorganization of the Company's sales and marketing staff. The cost of goods
consists primarily of the costs of materials associated with the sales and
support of the Company's products. The cost of goods as a percentage of net
sales for the 1997 period was 45.5% as compared to 48.1% for the comparable 1996
period. The decrease was principally the result of the competitive market for
the materials the Company purchases for use in its manufacturing operations and
a greater efficiency in its purchasing and production activities.
Selling, general and administrative expenses consist primarily of the costs of
sales, marketing, finance, management and administrative personnel, advertising,
promotions, trade shows and facilities expense. For the fiscal year ended
October 31, 1997 selling, general and administrative expenses were $3,192,219 as
compared to $3,193,336 for the same period in 1996.
Research and development expenses consist principally of the costs of research
and development personnel and other expenses associated with the development of
new products and enhancement of existing products. The Company expended $658,070
in fiscal year 1997 as compared with $582,711 for research and development in
its 1996 fiscal year. Such expenditures covered both research and development
conducted by the Company as well as the costs for contracted research and
development. The dollar increase was principally attributable to an accelerated
effort to develop the Company's M680 Infraducer, which has just been introduced
to the market.
The net loss for the fiscal year ended October 31, 1997 was $36,251 as compared
to net income of $18,589 for the same period in 1996. The loss in 1977 was due
primarily to an increase in expenses associated with the Company's aggressive
research and development program for fiscal 1997 as well as a decline in sales
revenue associated with delays occasioned by a reorganization of the Company's
sales and marketing staff.
YEAR 2000 ISSUES
The Company has conducted a full review of its computer systems, and the
products and systems which it manufactures and markets to identify the programs
and systems that could be affected by the so called "year 2000 problem." Based
upon that review, the Company has developed and is continuing to develop an
implementation plan to resolve the problem. The year 2000 problem is the result
of computer programs being written using two digits instead of four to define
the applicable year. Programs with this problem may recognize a date using "00"
as the year1900 instead of the year 2000, resulting in system failures or
miscalculations. As of the date of filing of this Report, all products and
systems manufactured by the Company are Year 2000 compliant, and all but two of
the products which are manufactured by others and marketed by the Company are
Year 2000 compliant. Those two products are scheduled to be modified by NEC,
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the company that manufactures them, so that they also will be Year 2000
compliant not later than March 31, 1999. The computer software programs upon
which the Company relies to run its daily operations, including purchasing,
manufacturing, engineering and accounting, are scheduled to be upgraded and
tested to insure that they are Year 2000 compliant not later than March 31,
1999. The Company is not certain as to whether the computer software and
business systems of its suppliers and customers are Year 2000 compliant. The
failure or delay of these parties to successfully address the Year 2000 problem
may result in delays in placing orders for components which the Company needs in
order to manufacture its products or in receiving orders for the purchase of its
products. Such delays may result in lost or lower revenues for the Company. The
Company anticipates that such delays and lost revenues, if any, would be
minimal.
The Company intends to continue to monitor its Year 2000 compliance and to
correct any noncompliance as it is discovered. Management anticipates funding
such efforts out of operating cash flow. Although no assurance can be given, the
Company presently believes that the effects of any noncompliance on its part, or
by its customers and suppliers, will not have a material adverse effect on the
Company's business, financial condition, results of operations or cash flows.
LIQUIDITY AND CAPITAL RESOURCES
As of October 31, 1998, the Company had cash, cash equivalents and short-term
investments of $415,401 as compared to $547,995 at October 31, 1997. In
addition, the Company had accounts receivable of $1,057,079 at October 31, 1998
compared to $910,835 at October 31, 1997.
As of October 31, 1998, the Company had working capital of $3,309,617 and a
backlog of $605,377. Management believes that the Company has adequate resources
to meet expected needs and to fund its anticipated research and development
efforts for the next 12 months. In the event additional capital is required in
excess of cash generated by operations, the Company presently intends to raise
such additional capital by continued borrowing arrangements and/or the sale of
additional equity securities, although there can be no assurance that the
Company will be successful in obtaining additional operating capital on terms
acceptable to it.
ITEM 7. FINANCIAL STATEMENTS
The Company's balance sheets at October 31, 1998 and 1997 and the related
statements of operations, shareholders' equity and statement of cash flows for
each of the fiscal years ended October 31, 1998 and 1997 and the report of the
independent certified public accountants thereon and financial statement
schedules required under Regulation S-X are submitted herein as a separate
section starting at Page F-1 following Item 13 of this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 9 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors and executive officers of the Company are as follows:
Name Age Position
---- --- --------
Steven N. Bronson 33 Chairman of the Board and
Chief Executive Officer
Keikhosrow Irani 62 President and Director
Alex Wu 52 Vice President, Secretary and
Treasurer
Alvin Katz 69 Director
Set forth below is a biographical description of each director and executive
officer of the Company based on information supplied by each of them.
Steven N. Bronson was appointed to the Company's Board of Directors in September
1996. He became Chairman and Chief Executive Officer in August 1998. Between
1991 and October 1998, Mr. Bronson was the President of Barber & Bronson
Incorporated ("B&B"), a full service securities brokerage and investment banking
firm which had its principal offices in Miami, Florida. Since April, 1996, Mr.
Bronson also has served as President of Catalyst Financial Corp., an investment
banking firm which was also located in Miami, Florida. In October 1998, Mr.
Bronson relocated to New York City. At that time, he closed down the operations
of B&B and he expanded Catalyst's operations to encompass brokerage and market
making operations as an NASD member firm, as well as investment banking
services. Mr. Bronson also sits on the Board of Directors of the Regional
Investment Bankers Association, an industry association engaged in capital
formation and the distribution of securities. In addition, Mr. Bronson serves as
a National Trustee for the Boys and Girls Club of America.
Keikhosrow Irani is a founder of the Company and was its Vice President and a
director since its organization in 1969. On August 31, 1995 he became the
Company's President and Chief Executive Officer and continues as a Director of
the Company. Mr. Irani holds the degree of Master of Science in Electrical
Engineering from the University of Missouri.
Alex Wu joined the Company in January, 1995 and has been its Treasurer since
August 31, 1995. In August 1998, he became the Company's Corporate Secretary.
Mr. Wu holds a BS - Accounting degree from Tom Koung University of Taipei,
Taiwan. From December, 1992 to August, 1994, he was the general operations
manager of a luggage importer and manufacturer. From 1988 to 1992, he was a
sales representative and investment consultant to a commercial real estate
company.
13
<PAGE>
Alvin Katz was appointed to the Company's Board of Directors in September 1996.
Since 1981, he has served as an adjunct professor of business management at
Florida Atlantic University. From 1957 to 1976, Mr. Katz was employed by United
Parcel Service holding various managerial positions, including District Manager
and Corporate Manager of Operations, Planning, Research and Development. Mr.
Katz serves on the Board of Directors of Blimpie International, Inc., which is
engaged in the franchising and marketing of quick service sandwich restaurants;
Amtech Systems, Inc., which is engaged in the semi-conductor industry; BCT
International, Inc., a franchisor of thermo graphic printing plants; Nastech
Pharmaceutical Company Inc., which is engaged in the development, manufacture
and marketing of nasally delivered pharmaceuticals and is Chairman of Ozo
Diversified Inc., a manufacturer of depaneling equipment for the computer chip
industry. Mr. Katz holds a B.S. in Business Administration degree from New York
University and has done graduate work at C.U.N.Y.- Baruch School.
The Board of Directors of the Company is divided into three classes: Class A
directors, Class B directors and Class C directors. Mr. Irani, a Class A
director, was elected for a term expiring in 1989. Since there have been no
subsequent elections, Mr. Irani remains in office until his successor shall be
elected and duly qualified. Mr. Bronson is also a Class A director, Mr. Katz is
a class B director and there is currently a vacancy for a class C director. It
is the Company's intention to hold an annual meeting of shareholders during the
second calendar quarter of 1999 at which the shareholders will be asked to
authorize a change in the Company's Certificate of Incorporation which will
eliminate the classified board of directors, and to elect a slate of three five
directors.
No family relationship exists between any of the persons described above. The
Company's Certificate of Incorporation contains provisions indemnifying its
officers, directors, employees and agents against certain liabilities.
ITEM 10 - EXECUTIVE COMPENSATION.
Although Steven N. Bronson has served as the Company's Chief Executive officer
since August 1998, he has not received any compensation from the Company in such
capacity. The following table sets forth certain information regarding
compensation paid by the Company during each of the Company's last three fiscal
years to Mr. Irani in his capacity as the Company's Chief Executive Officer in
fiscal 1996 and 1997) and as President in (1998), and to each of the Company's
executive officers who received salary and bonus payments in excess of $100,000
during the fiscal year ended October 31, 1998.
14
<PAGE>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Awards
Name and Principal Annual Compensation ------
------------------- Options All other
Year Salary Bonus (Shares) Compensation
---- ------ ----- -------- ------------
Keikhosrow Irani, 1998 $130,000 -- -- --
President
- -- Chief Executive 1997 $127,000 -- -- --
- -- Chief Executive 1996 $127,000 -- -- --
In addition to salary, Mr. Irani has Company paid life insurance and incidental
personal use of a Company-leased automobile. In each of fiscal years 1998, 1997,
and 1996, the aggregate value of these benefits was less than 10% of the salary
of the named executive.
The Company provides hospitalization, major medical and dental insurance to all
employees eligible under a group plan. Premium costs under such group plan
attributable to the officer named above are not included in the table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The Company did not grant any options or SARs to any of its executive officers
during the fiscal year ended October 31, 1998.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
None of the Company's executive officers (a) exercised any options or SARs
during the fiscal year ended October 31, 1998; or (b) held on October 31, 1998
any options or SARs granted to any of them by the Company.
COMPENSATION OF DIRECTORS
The Company has not paid and does not presently propose to pay compensation to
any director for acting in such capacity, except for nominal sums for attending
Board of Directors meetings and reimbursement for reasonable expenses in
attending those meetings.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
In December, 1996, the Company and Keikhosrow Irani, the Company's President,
entered into a five year employment agreement. Pursuant to this agreement, Mr.
Irani received compensation at the rate of $130,000 in 1998, and will receive
compensation at the rate of $135,000 in 1999, $140,000 in 2000 and $150,000 in
2001. The Agreement is renewable for an additional period of two years at Mr.
Irani's option. The agreement also provides Mr. Irani with the use of an
15
<PAGE>
automobile and for disability income equal to his base salary for up to six
months of disability. In the event of disability lasting beyond six months or in
the event of death of Mr. Irani, the agreement requires a payment of 50% of the
total amount of his last three years' salary over a term of three years. The
agreement also requires the Company to provide disability and life insurance to
Mr. Irani.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who beneficially own more than 10% of
the Company's Common Stock to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission ("SEC"). Such
persons are required by SEC regulations to furnish the Company with copies of
all Section 16(a) forms filed by such persons. Based solely on the Company's
review of such forms furnished to the Company and written representations from
certain reporting persons, the Company believes that such filing requirements
were complied with by all of its executive officers and directors, except Steven
N. Bronson, the Company's Chairman and Chief Executive Officer, and Keikhosrow
Irani, the Company's President. Mr. Bronson failed to timely file a Form 4 with
regard to a purchase of shares of the Company's Common Stock which took place in
June 1998, and Mr. Irani failed to timely file a Form 4 with regard to a
purchase of shares of the Company's Common Stock which took place in September
1998.
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is information concerning the Common Stock ownership as of
January 19, 1999 by (i) each person who is known by the Company to own
beneficially 5% or more of its outstanding Common Stock, (ii) each director, and
(iii) all directors and officers of the Company as a group:
Amount and Nature Percentage of
of Beneficial Outstanding Shares
Name of Beneficial Owner (1) Ownership (1) Owned (2)
- ---------------------------- ------------- ---------
Steven N. Bronson (3)(4) 1,128,085 28.6%
Long Term Growth Associates (3) 800,000 21.1%
Keikhosrow Irani (5) 645,984 17.1%
Chori Co., Ltd. (6) 350,000 9.2%
Alvin Katz (7) 45,000 (8)
All Officers and
Directors as a Group
(4 persons) (9) 1,819,069 46.2%
- ----------
(1) All shares are owned beneficially and of record unless indicated
otherwise.
16
<PAGE>
(2) Based upon 3,785,700 shares issued and outstanding.
(3) Mr. Bronson is a principal of Long Term Growth Associates. The address of
both of these shareholders is c/o Catalyst Financial Corp., 16 East 52nd
Street, New York, NY. Information is based upon a Schedule 13D, as
amended.
(4) Includes 153,685 shares issuable pursuant to warrants held by Mr. Bronson,
which may be exercised within 60 days of the date of this Report. See
"Certain Relationships and Related Transactions." 800,000 of the shares
indicated as owned beneficially by Mr. Bronson are shares owned of record
by Long Term Growth Associates. He is deemed to possess the right to vote
and the right to dispose of all of such shares.
(5) The address of this shareholder is c/o the Company. Includes 60,000 shares
which, by reason of Mr. Irani's interest as a limited partner of Long Term
Growth Associates, he is deemed to beneficially own. Mr. Irani possesses
neither the right to vote nor the right to dispose of such shares.
(6) The address of this shareholder is 4-7 Kawaramachi, 2-chome, Chuo-ku,
Osaka 541, Japan.
(7) The address of this shareholder is 301 N. Birch Rd., Fort Lauderdale, FL
33309. Does not include 50,000 shares which, by reason of Mr. Katz's
wife's interest as a limited partner of Long Term Growth Associates, she
is deemed to beneficially own. Mr. Katz possesses neither the right to
vote nor the right to dispose of such shares, and he disclaims beneficial
ownership of them.
(8) Represents less than 1%.
(9) Includes 153,685 shares issuable pursuant to warrants held by Mr. Bronson,
which may be exercised within 60 days of the date of filing of this
Report.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Donald S. Michael, a director of the Company until July 21, 1995 and its
President and Chief Executive Officer until August 31, 1995, had an employment
agreement with the Company which was to expire on August 31, 2000. That
agreement provided for compensation of $75,000 during the period September 1,
1995 to August 31, 1996, such compensation reducing by 20% per year thereafter.
In addition, the agreement prevented Mr. Michael from competing with the
Company, or disclosing any proprietary information, for which the Company agreed
to pay him $150,000 in twelve quarterly payments of $12,500. The last quarterly
payment under this agreement was made in June 1998. The Company's remaining
obligation of $13,138.48 to Mr. Michael is payable through August 31, 2000.
Since August, 1992, the Company has provided $500,000 of life insurance for
Messrs. Irani and Michael.
17
<PAGE>
The Company had retained B&B as its exclusive investment banker until September
30, 1998. Under its agreement with B&B, the Company paid $1,000 per month to B&B
and issued to certain principals of Barber & Bronson warrants to purchase up to
400,000 shares of the Company's Common Stock at prices ranging from $0.81 per
share to $2.50 per share. Mr. Bronson, the President, sole director and
principal shareholder of B&B, received warrants to purchase 318,060 of said
400,000 shares. On December 31, 1998, Mr. Bronson exercised warrants to purchase
131,500 of said 318,060 shares at prices ranging between $.81 and $1.50 per
share. Also, on said date, one of the warrants which entitled Mr. Bronson to
purchase 32,875 shares at an exercise price of $1.75 per share. Mr. Bronson
continues to hold one of such warrants which entitles him to purchase up to
153,685 shares of Common Stock at an exercise price of $2.50 per share through
September 30, 2000.
The Company has a variety of agreements with Chori, and Chori-America. Chori is
an owner of more than five percent (5%) of the Common Stock of the Company.
During fiscal year 1997, the Company purchased approximately $195,600 of
products from or through Chori. The Company paid Chori and Chori-America
approximately $68,000, in commissions during fiscal year 1997.
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-B
3.1 The Certificate of Incorporation of the Company as amended effective
September 29, 1989., filed as Exhibit (3)-2 to Registration No. 33-2653-NY under
the Securities Act of 1933 (the "1933 Act"), is hereby incorporated by
reference.
3.2 The Certificate of Incorporation of the Company as amended effective October
13, 1989, filed as Exhibit (3)-3 to Registration No. 33-2653-NY under the 1933
Act, is hereby incorporated by reference.
4.1 Specimen of amended certificate representing the Company's Common Stock,
one-third cent per value, filed as Exhibit (4)-1 to Registration No. 33-2653-NY
under the 1933 Act, is hereby incorporated by reference.
4.2 Mikron Instrument Company, Inc. Common Stock Purchase Warrants, dated as of
January 1, 1994, held by Barber & Bronson Incorporated, filed as Exhibit 4(c) to
the Company's 10-K Report dated January 27, 1994 and is hereby incorporated by
reference.
10.1 Agency Agreement, dated as of April 15, 1992, between Mikron Instrument
Company, Inc. and Chori America, Inc., filed as Exhibit 10-B to the Company's
Form 8-K Report dated April 15, 1992, as amended in an amendment dated July 10,
1992, is hereby incorporated by reference.
10.2 License and Technical Assistance Agreement, dated as of April 15, 1992,
between Mikron Instrument Company, Inc. and Anritsu Meter Company, Ltd., filed
as Exhibit 10-D to the Company's Form 8-K Report dated April 15, 1992, as
amended in an amendment dated July 10, 1992, is hereby incorporated by
reference.
18
<PAGE>
10.3 Mikron Instrument Company, Inc. Amended and Restated Profit Sharing Plan
and Trust Agreement, dated November 1, 1980, filed as Exhibit 10 (g) to the
Company's 10-K Report dated January 28, 1991 and is hereby incorporated by
reference.
10.4 Settlement Agreement dated as of July 1, 1992 between Mikron Instrument
Co., Inc. and Square D Company, filed as Exhibit 10 (i) to the Company's 10-K
Report dated January 25, 1993 and is hereby incorporated by reference.
10.5 Mikron Instrument Company, Inc. 401(K) Profit-Sharing Plan dated January 1,
1993, filed as Exhibit 10(j) to the Company's 10-K Report dated January 27, 1994
and is hereby incorporated by reference.
10.6 Investment Banking Agreement dated as of January 1, 1994 between Mikron
Instrument Company and Barber & Bronson Incorporated, filed as Exhibit 10(k) to
the Company's 10-K Report dated January 27, 1994 and is hereby incorporated by
reference.
10.7 Settlement Agreement dated as of March 31, 1994 between Mikron Instrument
Company, Inc. and Land Instrument International, Inc., filed as Exhibit 10 to
the Company's 8-K Report dated March 31, 1994, as awarded by an Amendment dated
June 20, 1994, and is hereby incorporated by reference.
10.8 Amended and Restated Employment Agreement and Covenant Not to Compete
between Mikron Instrument Company, Inc. and Donald S. Michael dated as of July
24, 1995, filed as Exhibit 10 to the Company's 8-K Report dated November 24,
1995 and is hereby incorporated by reference.
10.9 Investment Banking Agreement dated as of October 1, 1995 between Mikron
Instrument Company, Inc. and Barber & Bronson Incorporated, filed as Exhibit 10
to the Company's 8-K Report dated January 3, 1996 and is hereby incorporated by
reference.
10.10 Employment Agreement between the Company and Keikhosrow Irani, dated as of
December 20, 1996, filed as Exhibit 10 to the Company's Report on Form 10-KSB
dated November 24, 1995 and is hereby incorporated by reference.
10.11 Settlement Agreement between the Company and Raytek Corporation, filed as
Exhibit 10.11 to the Company's Report on Form 10-KSB dated January 29, 1998 and
is hereby incorporated by reference.
10.12 Sales Representation Agreement between the Company and Anritsu Meter Co.,
Ltd., filed as Exhibit 10.12 to the Company's Report on Form 10-KSB dated
January 29, 1998 and is hereby incorporated by reference
27 Financial Data Schedule.
(b) Reports on Form 8-K
19
<PAGE>
No reports on Form 8-K were filed by the Company during the last quarter of the
period covered by this Report.
20
<PAGE>
MIKRON INSTRUMENT COMPANY, INC.
FINANCIAL STATEMENTS
INDEX
Page
Number
------
INDEPENDENT AUDITORS' REPORT F - 2
FINANCIAL STATEMENTS:
Balance Sheet - October 31, 1998 and 1997 F - 3
Statement of Operations - Years ended
October 31, 1998 and 1997 F - 4
Statement of Shareholders' Equity - Years ended
October 31, 1998 and 1997 F - 5
Statement of Cash Flows - Years ended
October 31, 1998 and 1997 F - 6
Notes to Financial Statements F - 7
All schedules are omitted because they are inapplicable, not required, or the
information is included elsewhere in the financial statements or notes thereto.
F-1
<PAGE>
[FELDMAN SHERB EHRLICH & CO., P.C. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Mikron Instrument Company, Inc.
Oakland, New Jersey
We have audited the accompanying balance sheet of Mikron Instrument Company,
Inc. as of October 31, 1998 and 1997 and the related statements of operations,
shareholders' equity and cash flows for each of the years in the two-year period
ended October 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, the
financial position of Mikron Instrument Company, Inc. as of October 31, 1998 and
1997 and the results of its operations and its cash flows for each of the years
in the two-year period ended October 31, 1998 in conformity with generally
accepted accounting principles.
FELDMAN SHERB EHRLICH & CO., P.C.
Certified Public Accountants
New York, New York
December 15, 1998
F-2
<PAGE>
MIKRON INSTRUMENTS COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
October 31,
-----------------------
1998 1997
---------- ----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 415,400 $ 547,995
Trade accounts receivable, less allowance for
doubtful accounts of $83,000 and $137,000 1,057,079 910,835
Inventories 2,285,052 2,258,447
Prepaid expenses and other current assets 93,484 88,712
---------- ----------
TOTAL CURRENT ASSETS 3,851,015 3,805,989
PROPERTY AND EQUIPMENT, net 286,470 272,025
OTHER ASSETS 0 37,500
---------- ----------
$4,137,485 $4,115,514
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 537,038 $ 692,944
Current portion of capital lease obligation 4,360 3,782
---------- ----------
TOTAL CURRENT LIABILITIES 541,398 696,726
---------- ----------
LONG-TERM LIABILITIES:
Capital lease obligation 6,475 10,793
---------- ----------
TOTAL LONG-TERM LIABILITIES 6,475 10,793
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, $.003 par value;
authorized - 15,000,000 shares; issued and outstanding
3,654,200 shares in 1998 and 1997 12,181 12,181
Additional paid-in capital 3,151,831 3,151,831
Retained earnings 425,600 243,983
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 3,589,612 3,407,995
---------- ----------
$4,137,485 $4,115,514
========== ==========
</TABLE>
See notes to financial statements
F-3
<PAGE>
MIKRON INSTRUMENT COMPANY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended October 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
REVENUES:
Net sales $ 8,250,730 $ 6,618,513
Royalties 176,041 197,693
----------- -----------
TOTAL REVENUES 8,426,771 6,816,206
----------- -----------
COSTS AND EXPENSES:
Cost of goods sold 3,872,590 3,013,405
Selling, general and administrative 3,620,910 3,192,219
Research and development 726,241 658,070
----------- -----------
TOTAL COSTS AND EXPENSES 8,219,741 6,863,694
----------- -----------
INCOME (LOSS) FROM OPERATIONS 207,030 (47,488)
OTHER INCOME:
Investment and interest income 24,587 8,659
Gain on currency translation 0 2,578
----------- -----------
INCOME (LOSS) BFEORE PROVISION FOR
INCOME TAXES 231,617 (36,251)
PROVISION FOR INCOME TAXES 50,000 --
----------- -----------
NET INCOME (LOSS) $ 181,617 $ (36,251)
=========== ===========
NET INCOME (LOSS) PER SHARE-BASIC $ 0.05 $ (0.01)
=========== ===========
NET INCOME (LOSS) PER SHARE-DILUTED $ 0.05 $ (0.01)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES-BASIC 3,654,200 3,654,200
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES-DILUTED 3,683,170 3,654,200
=========== ===========
</TABLE>
See notes to financial statements
F-4
<PAGE>
MIKRON INSTRUMENT COMPANY, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------------- Paid-In Retained Stockholders'
Shares Amount Capital Earnings Equity
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance October 31, 1996 3,654,200 $ 12,181 $ 3,151,831 $ 280,234 $ 3,444,246
Net loss 0 0 0 (36,251) (36,251)
----------- ----------- ----------- ----------- -----------
Balance October 31, 1997 3,654,200 12,181 3,151,831 243,983 3,407,995
Net Income 0 0 0 181,617 181,617
----------- ----------- ----------- ----------- -----------
Balance October 31, 1998 3,654,200 $ 12,181 $ 3,151,831 $ 425,600 $ 3,589,612
=========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements
F-5
<PAGE>
MIKRON INSTRUMENT COMPANY, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended October 31,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 181,617 $ (36,251)
--------- ---------
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation 66,646 58,084
Amortization 37,500 50,000
Changes in assets and liabilities:
(Increase) decrease in trade accounts receivable (146,244) 337,941
(Increase) in inventories (26,605) (3,170)
(Increase) in prepaid and other current assets (4,772) (15,375)
(Decrease) increase in accounts payable and accrued liabilities (155,328) 28,346
--------- ---------
(228,803) 455,826
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (47,186) 419,575
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (81,091) (36,992)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (81,091) (36,992)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in long-term debt (4,318) (40,952)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (4,318) (40,952)
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (132,595) 341,631
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 547,995 206,364
--------- ---------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 415,400 $ 547,995
========= =========
</TABLE>
See notes to financial statements
F-6
<PAGE>
MIKRON INSTRUMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
Mikron Instrument Company, Inc. (the "Company") is engaged in designing
and manufacturing a broad range of infrared thermometers for sale to domestic
and foreign markets. The Company also sells a family of high sensitivity
infrared thermal imagers under its name which is manufactured by a Japanese
company.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Cash and Cash Equivalents. Cash equivalents are carried at cost,
which approximates market. The Company considers all highly liquid
investments with a maturity date of three months or less when
purchased to be cash equivalents.
b. Inventories. Inventories are stated at the lower of cost (average
cost method) or market.
c. Property and Equipment. Property and equipment are stated at cost.
Depreciation and amortization, which includes the amortization of
leasehold improvements are computed principally using straight-line
depreciation over the estimated useful lives of individual assets or
the remaining terms of leases.
d. Amortization of Covenant Not To Compete. The Covenant Not To Compete
is amortized on a straight-line basis over 36 months.
e. Revenues. Net sales are recognized at the time of shipment.
Royalties are recorded as earned in accordance with specific terms
of each license agreement.
f. Research and Development Costs. Research and development costs are
expensed as incurred.
g. Advertising costs. The costs of advertising are expensed as
incurred.
h. Earnings per share. The Company has adopted SFAS No. 128, "Earnings
per Share". Net income (loss) per common share has been restated for
all periods presented to conform to the provisions of SFAS No. 128.
Basic earnings (loss) per share is computed by dividing net income
(loss) available to common stockholders by the weighted average
number of common shares outstanding during the period. Diluted
earnings per share reflects the amount that would have resulted if
potential common stock had been converted to common stock, as
prescribed by SFAS No. 128.
i. Accounting estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities
F-7
<PAGE>
MIKRON INSTRUMENT COMPANY, INC.,
NOTES TO FINANCIAL STATEMENTS - (continued)
and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
j. Fair value of financial instruments. Effective October 31, 1996, the
Company adopted SFAS No. 107, "Disclosures About Fair Value of
Financial Instruments", that requires disclosures of fair value
information about financial instruments whether or not recognized in
the balance sheet. The carrying amounts reported in the balance
sheet for cash, trade receivables, accounts payable and accrued
expenses approximate fair value based on the short term maturity of
these instruments.
k. Accounting for long lived assets. The company reviews long-lived
assets and certain identifiable assets for impairment whenever
circumstances and situations change such that there is an indication
that the carrying amount may not be recoverable. At October 31,
1998, the Company believes that there has been no impairment of its
long-lived assets.
2. INVENTORIES
The components of inventories are summarized as follows:
October 31,
---------------------------
1998 1997
---------- ----------
Materials and parts $1,576,721 $1,135,101
---------- ----------
Work in process 220,026 401,217
Finished goods 488,305 722,129
---------- ----------
$2,285,052 $2,258,447
========== ==========
3. PROPERTY AND EQUIPMENT
F-8
<PAGE>
MIKRON INSTRUMENT COMPANY, INC.,
NOTES TO FINANCIAL STATEMENTS - (continued)
Property and equipment consists of the following:
October 31,
-----------------------------
1998 1997
----------- -----------
Machinery and equipment $ 925,031 $ 843,941
Furniture and fixtures 49,273 49,273
Leasehold improvements 64,445 64,445
----------- -----------
1,038,749 957,659
Less: accumulated
depreciation (752,279) (685,634)
----------- -----------
$ 286,470 $ 272,025
=========== ===========
4. EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) plan covering substantially all full-time
employees, which provides for Company matching of 30% of the participant's
elective deferral, but in no event greater than 1.5% of the participant's
compensation. The Company's matching expense for the plan was $23,045 and
$14,935 for the years ended October 31, 1998, and 1997 respectively.
5. CAPITAL LEASE OBLIGATION
The Company has leased equipment under non-cancelable lease agreements
which expire at December 2000. As of October 31, 1998 minimum annual lease
commitments under capital leases with terms in excess of one year are as
follows:
1999 $ 5,616
2000 5,616
2001 1,872
---------
Total future minimum lease payments 13,104
F-9
<PAGE>
MIKRON INSTRUMENT COMPANY, INC.,
NOTES TO FINANCIAL STATEMENTS - (continued)
Less amounts representing interest (2,289)
---------
Present value of minimum lease payments 10,835
Less: Current portion of obligations under capital
lease (4,360)
---------
Long-term obligations under capital lease, net of
current portion $ 6,475
=========
6. COMMITMENTS
Operating Leases
The Company has a five year operating lease agreement for its
manufacturing, warehouse and office facilities, with an option to extend
the lease for an additional five years. The lease expires December 31,
2000. The lease provides for the Company to pay certain operating costs of
the leased property. Rent expense for the years ended October 31, 1998,
and 1997, was approximately $196,306, and $191,378 respectively.
At October 31, 1998, the minimum future rental commitments under this
lease are as follows:
Year Ending October 31,
-----------------------
1999 $ 191,378
2000 31,897
Employment Contracts
The Company has entered into an employment agreement expiring August 31,
2000 with an employee/stockholder. The agreement provides for aggregate
compensation of $225,000 during the term of the agreement. In the event of
death or disability of the employee/stockholder, the agreement calls for
payments to the employee's estate, or beneficiary of his unpaid
compensation contemplated under the agreement in equal annual installments
over three years. If the employee/stockholder retires during the term of
the agreement, he shall receive 30% of the unpaid compensation
contemplated under
F-10
<PAGE>
MIKRON INSTRUMENT COMPANY, INC.,
NOTES TO FINANCIAL STATEMENTS - (continued)
the agreement in equal annual installments over three years. The agreement
contains provisions intended to prevent the employee/stockholder from
entering into any form of competition with the Company or disclosing any
proprietary information for which the Company has agreed to the pay the
employee/stockholder $150,000 in twelve quarterly payments of $12,500. The
net covenant of $37,500 is included in other assets at October 31, 1997.
The Company has an employment agreement with an executive officer expiring
December 31, 2001. The agreement provides for compensation as follows:
Year Ending October 31,
-----------------------
1999 $ 134,166
2000 139,167
2001 $ 148,334
Investment Banking Agreement
On October 1, 1995 the Company entered into a three year agreement with an
investment banking firm to serve as the Company's financial advisor as to
any and all corporate finance matters or other corporate business that the
Company deems appropriate. The investment banking firm's compensation will
be $12,000 per year for three years, as well as additional compensation of
5% with respect to transactions such as mergers or acquisitions brought to
the Company by the investment banking firm. In addition, the Company
granted the investment banking firm warrants to purchase a total of
200,000 shares of the Company's common stock with an exercise price of
$2.50 per share for which the investment banking firm paid the Company
$666. The fair market value of the Company's stock at October 31, 1998 was
$.625. The warrants expire on September 30, 2000.
Credit Agreements
The Company has a commercial line of credit agreement with a bank which
provides a line of credit of up to $600,000 at the prime interest rate and
a foreign exchange line's daily settlement of $200,000. As of October 31,
1998 the prime rate was 8.50%. This agreement runs through February 28,
2001, and is secured by all of the present and future accounts receivable,
inventory and fixed assets of the Company.
F-11
<PAGE>
MIKRON INSTRUMENT COMPANY, INC.,
NOTES TO FINANCIAL STATEMENTS - (continued)
7. STOCKHOLDERS' EQUITY
As of December 31, 1998 and 1997, there was 400,000 warrants to purchase
common stock issued by the Company. 200,000 of these warrants will expire
on December 31, 1998 and 200,000 will expire on September 30, 2000.
8. INCOME TAXES
Income statement presentation of the Company's Income Tax Provision and
Deferred Tax Assets and Liabilities are presented in accordance with
Financial Accounting Standards Board Statement 109, "Accounting for Income
Taxes." Deferred Tax Assets consist of the following:
Year ended October 31,
----------------------
1998 1997
---- ----
Net operating loss carryforwards $ -- $ 26,200
Less: valuation allowance -- (26,200)
------ --------
$ -- $ --
====== ========
Reconciliation of the provision for income taxes shown in the financial
statements and amounts computed by applying the Federal statutory income
tax rates are as follows:
Year ended October 31,
----------------------
1997 1997
---- ----
Net earnings before income taxes $231,617 $ (36,251)
======== =========
Provision (benefit) for income taxes $ 68,000 $ (14,478)
Tax benefit not recognized -- 14,478
Benefit provided by net operating
loss carryforwards (18,000) --
F-12
<PAGE>
MIKRON INSTRUMENT COMPANY, INC.,
NOTES TO FINANCIAL STATEMENTS - (continued)
Research and development credits (50,000) --
-------- ---------
$ -- $ --
======== =========
Alternative minimum tax $ 50,000 $ --
======== =========
9. ADVERTISING COSTS
Advertising costs amounted to approximately $488,636 and $403,571 for the
years ended October 31, 1998 and 1997, respectively.
10. RELATED PARTY TRANSACTIONS
The Company purchases certain of its products from a Japanese company that
is a stockholder. Purchases from this company, for the years ended October
31, 1998, and 1997 were approximately $936,658, and $195,600 respectively.
Resales to international customers for items previously purchased from
this company were $94,100, and $416,200 for the years ended October 31,
1998 and 1997 respectively. In addition, under the terms of a distribution
agreement, this company acts as the international sales representative for
all of the Company's products for which it earns a 5% commission. For the
years ended October 31, 1998, and 1997, the company received commissions
of approximately $72,000, and $68,000 respectively.
11. ROYALTIES
In 1992, the Company instituted suits in the Federal District Court for
Eastern Pennsylvania against two companies for infringement of one of the
Company's patents. The Company settled one case effective July 1, 1992,
and one case effective March 31, 1994 on terms management believes are
favorable to the Company. The settlements included, among other terms,
payments to the Company of back royalties for sales of the patented
products sold, royalties to the Company for prospective sales of patented
products and a payment for damages by one of the companies. On May 27,
1997 there was a similar settlement agreement with another company
effective January 1, 1996. For the years ended October 31, 1998 and 1997
the Company earned royalties of approximately $176,000 and $197,700
respectively.
F-13
<PAGE>
MIKRON INSTRUMENT COMPANY, INC.,
NOTES TO FINANCIAL STATEMENTS - (continued)
12. EXPORT SALES
For the years ended October 31, 1998 and 1997, approximately $1,569,151 or
19%, and $1,903,840 or 29% respectively, of the Company's sales were to
customers located outside of the United States.
13. FOURTH QUARTER ADJUSTMENTS (UNAUDITED)
Fourth quarter adjustments included the write off of a sales catalog
balance of $33,000 and an increase to inventory of $110,000 due to the
differences between physical and perpetual inventory records.
F-14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 26th day of
January, 1999.
MIKRON INSTRUMENT COMPANY, INC.
By: /s/ Steven N. Bronson
----------------------------------
Steven N. Bronson, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
/s/ Steven N. Bronson Chief (Principal) Executive Officer, January 26, 1999
- ---------------------- Chairman of the Board
STEVEN N. BRONSON
/s/ Keikhosrow Irani President, Director January 26, 1999
- ----------------------
KEIKHOSROW IRANI
/s/ Alex Wu Treasurer (Principal Financial and
- ---------------------- Accounting Officer) January 26, 1999
ALEX WU
/s/ Alvin Katz Director January 26, 1999
- ----------------------
ALVIN KATZ
21
<PAGE>
Index To Exhibits
Exhibit No. Description
27 Financial Data Schedule
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet at October 31, 1998 and the Statement of Operations for the year ended
October 31, 1998 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<CASH> 415,400
<SECURITIES> 0
<RECEIVABLES> 1,140,079
<ALLOWANCES> 83,000
<INVENTORY> 2,285,052
<CURRENT-ASSETS> 3,851,015
<PP&E> 1,038,749
<DEPRECIATION> 752,279
<TOTAL-ASSETS> 4,137,485
<CURRENT-LIABILITIES> 541,398
<BONDS> 6,475
0
0
<COMMON> 12,181
<OTHER-SE> 3,577,431
<TOTAL-LIABILITY-AND-EQUITY> 4,137,485
<SALES> 8,250,730
<TOTAL-REVENUES> 8,426,771
<CGS> 3,872,590
<TOTAL-COSTS> 8,219,741
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 231,617
<INCOME-TAX> 50,000
<INCOME-CONTINUING> 181,617
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 181,617
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
